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1.1 In this edition of the Maples Tax Update, we examine a number of current Irish and international tax issues:

(a) in the financial services sector, we outline significant new guidance on the tax treatment of "section 110 companies" and Irish real estate funds. We also comment on the tax treatment of Irish investment managers;

(b) the pace of international tax reform is unrelenting and we examine the new EU directive on reporting aggressive tax structures, in addition to the EU's proposals for digital taxation;

(c) in relation to Irish real estate, there are new provisions governing stamp duty refunds on residential property, and our views on the tax status of REITs; and

(d) finally, in the corporate sector, we examine the recent tax advantaged ("KEEP") option schemes and the treatment of share buy-backs.

1.2 If you have any questions on the matters discussed in this update, please contact the Maples Tax Group or your usual Maples contact for further assistance.

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Financial Services

2 Section 110 Companies New Irish Revenue Guidance

2.1 The Irish Revenue published new technical guidance on 24 May 2018 relating to companies falling within the scope of section 110 of the Irish Taxes Consolidation Act 1997 (known as "section 110 companies").1

2.2 Most significantly, the guidance deals with section 110 companies which hold Irish real estate loans and related assets. This aspect of the legislation was subject to material change in 2016 and 2017 and the new guidance will be carefully reviewed by section 110 companies engaged in RMBS and loan origination businesses.

2.3 In addition, there are a number of matters not covered in previous guidance including:

(d) the use of "orphan structures" to hold the shares of the section 110 company; and

(e) the tax residence and "carrying on business" requirements for section 110 companies.

2.4 Maples and Calder has been involved in consultation over a period of time with the Irish authorities regarding this guidance through industry associations including the Irish Debt Securities Association and Irish Funds.

3.1 The Finance Act 2016 introduced a new tax regime for Irish regulated funds which have invested in Irish real estate assets, including direct and indirect interests in Irish property. Where a fund is classified as an Irish Real Estate Fund (or IREF), it is obliged to deliver a specific IREF tax return.

3.2 Funds with a 31 December financial year end must file their 2017 returns by 30 July 2018, although this may be extended in certain cases. Revenue circulated a copy of the return in spring 2018 and this has been the subject of detailed discussion between Revenue and the Irish Funds industry.

3.3 Funds which are treated as IREFs should take note of two points:

(a) they should ensure that an appropriate service provider is tasked with the preparation and delivery of the return. Although many administrators will be contracted to deal with VAT and Investment Undertaking Tax (IUT) returns, the IREF return may not be specifically listed in the schedule of services. It may be necessary to review and amend the administration agreements to deal with the preparation of the IREF return; and

(b) detailed information is required to complete the return. This may require considerable effort and time to collate. In addition, there are elements of the return that will require specialist tax advice prior to submission.

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4 Tax Treatment of Irish Investment Managers 4.1 Historically, despite the popularity of Ireland as an EU fund domicile, there were relatively few active

investment managers based in the jurisdiction. Managers of Irish funds were typically based in other jurisdictions, such as the UK, France and the US. Brexit is now leading to an increase in the number of Irish based investment managers. 4.2 On 16 April 2018, Irish Revenue published guidance on the taxation treatment of Irish managers.2 The guidance outlines a number of scenarios in which Irish Revenue considers investment returns generated by a manager as trading income, subject to the 12.5% rate of taxation. 4.3 The scenarios include cases where the manager is required to co-invest alongside other investors. Frequently, this is to ensure there is mutuality of interests between the manager and investor or, put another way, to ensure the manager has "skin-in-the-game". Other cases accepted as generating trading income include where the manager is required to provide seed capital in advance of investor subscriptions, or where the manager acquires an investment to hedge its exposure to pay individual employees. 4.4 These scenarios are not the only situations in which trading taxation treatment is available. They can be viewed as "safe-harbors". Revenue's guidance is limited to authorised investment managers, such as Alternative Investment Fund Managers (AIFMs) and MiFID regulated investment firms. However, as the taxation principles that support the guidance are not linked to regulatory status, they will be of interest to other investment advisors and non-regulated managers. 4.5 Brexit has also led to an increased focus on the Irish taxation of traditional "carried interest". This term typically refers to interests in limited partnerships held by individual managers who are engaged in private equity funds. In this regard, Maples has advised a number of managers on the Irish tax treatment, which can be significantly different from the results expected in other jurisdictions such as the UK.

5.1 Information exchange, mandatory disclosure and transparency have become buzz words in the field of international taxation in recent years with the introduction of FATCA and the Common Reporting Standard (CRS). The EU and OECD have now proposed additional regimes to extend and enhance those existing disclosure and exchange regimes.

5.2 On 25 May 2018, the Council of the European Union agreed an amendment to Council Directive 2011/16/EU (the "Directive"), providing for the mandatory and automatic exchange of information regarding aggressive tax planning by taxpayers in the EU. This may impose a compliance burden on tax advisers and other intermediaries including, potentially, asset managers.

5.3 EU Member States are required to implement the rules by 31 December 2019 with first reporting to start from July 2020. However, importantly, the reporting obligations have retrospective effect and intermediaries should, in broad terms, keep a record of disclosable transactions from 25 June 2018.

5.4 The information exchange will apply to cross border transactions (those involving more than one EU Member State or involving a Member State and a third country) which bear certain "hallmarks". The Directive sets out 15 such hallmarks including where payments are made to no and low tax jurisdictions or transactions which benefit from a preferential tax regime in a recipient jurisdiction.

5.5 Persons who are considered to be "intermediaries" are required to disclose cross-border arrangements which bear one of the "hallmarks". The definition of intermediary is broadly drafted and includes any person who had a role in the design, marketing, organisation, management, or in aiding, assisting or advising in relation to the transaction. Tax advisers, accountants and lawyers may all be intermediaries. However, information held by lawyers will most likely be protected by legal professional privilege and should, therefore, not be disclosable. If no intermediary is obliged or permitted to satisfy the disclosure, then the obligation falls to the taxpayer.

5.6 Separately, the OECD mandatory disclosure proposals seek disclosure by intermediaries of transactions that have the hallmarks of a CRS avoidance arrangement or an opaque offshore structure. An opaque offshore structure is one involving the use of a passive entity in a jurisdiction other than the jurisdiction of residence of one or more of the beneficial owners and that is designed to, marketed as or has the effect of disguising the identity of the beneficial owners. It is possible that the OECD rules may be implemented in conjunction with the EU mandatory disclosure rules.

5.7 It is unclear how the Irish government will implement these measures. Mandatory disclosure rules already exist in Ireland and require promoters or taxpayers to disclose information to the Irish Revenue Commissioners in relation to certain transactions. It is likely that the Directive will now bring more transactions within scope by virtue of the broader concept of intermediary and the number of hallmarks included. Information disclosed under the new regime will also be subject to automatic exchange with other national tax authorities within the EU.

5.8 For clients, it may be prudent to ask their advisers whether the structures or arrangements they put in place in are disclosable under the new regime and to consider whether, in light of that, they wish to proceed. The new provisions will certainly increase the information available to the tax authorities and the legislators and may make cross-border tax planning schemes more vulnerable to legislative change or challenge by tax authorities.

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6 Taxation of Digital Economy - The EU "Solution"

6.1 On 21 March 2018, the European Commission published its proposed measures concerning the taxation of the EU digital economy. The Commission's proposals seek to lay down the general rules for allocating profits to a significant digital presence in the EU. It consists of two proposed Council Directives.

6.2 The first Directive would entitle Member States to tax corporate profits that are generated in their territory, even if the companies do not have a physical presence there. A company will be deemed to have a taxable digital presence or a virtual permanent establishment in a Member State if it meets one of a number of criteria, including revenue in excess of 7 million or a user base of over 100,000. These new rules introduce user data as an innovative proxy for profit allocation in a Member State.

6.3 The second Directive would introduce a tax levied at the rate of 3% on revenues from certain digital services. This is intended to be an interim measure, until the comprehensive reform designed by the Commission has been implemented. It is directed at companies with total annual worldwide revenues of 750 million and EU revenues of 50 million. It applies a tax of 3% on gross revenue created (i) from selling online advertising space or (ii) from the sale of data generated from user-provided information.

6.4 In terms of process, the two proposals will require unanimous approval by the European Council and then implementation in each of the 28 EU Member States before they come into effect (if they are so approved). Unanimous vote, rather than a majority vote, is required for these directives as they relate to matters of taxation. In this context, an individual Member State could use its veto in the final vote by the European Council.

6.5 The political reaction has been mixed. The Irish Minister for Finance noted the OECD reports on digital taxation, possibly referencing the need for broader international consensus on this issue, rather than EU focused measures. The Irish Parliament also published a reasoned opinion on 16 May 2018, addressed to the president of the Council of the European Union, which questions the necessity of these measures.

6.6 It is unclear whether there will be EU consensus on these proposals. This could potentially lead to a patchwork of national responses based on the text of the Commission's proposals. Such unilateral introduction of domestic rules could complicate the OECD's prospect of addressing the taxation of the digital economy on a global level. Maples and Calder can advise further on the draft measures and can provide assistance to stakeholders who wish to make representations to the Irish and EU authorities in this regard.

Budget 2018 with the changes subsequently codified in the Finance Act 2017. 7.2 In an effort to increase residential construction a stamp duty refund is available in certain

circumstances for land that is developed for residential purposes. The conditions for the refund are outlined in the updated Stamp Duty Manual3 and include the following:

(a) construction operations must commence within 30 months after the land has been acquired; (b) the development must be completed within 2 years of a local authority acknowledging a

commencement notice or a 7-day notice; and (c) in multi-unit developments, at least 75% of the total surface area of the land must be occupied

by housing units. 7.3 This relief is important, particularly given the restriction on the "sub-sale relief" rules which previously

were often an important factor in property development. Developers, lenders and contractors should consider the impact of these rules very carefully as the stamp duty rules can have practical implications, including in relation to the management of works and issues of liability should a project be delayed.

8.1 The Irish Real Estate Investment Trust ("REIT") provisions of the Irish tax legislation are some of the most misunderstood provisions of Irish tax law. If media reports are to be believed, there are a number of entities currently intending to establish themselves as REITs. Maples have provided tax advice on a number of REITs and we have set out below a few of the key points that clients have found helpful in understanding the regime.

8.2 Contrary to the suggestion in the name, a REIT is not a trust. A REIT is simply an Irish incorporated company which has notified Revenue that it intends to claim the Irish REIT tax regime. In the election, the company confirms its intention to comply with a number of conditions, such as a stock exchange listing, leverage limits, diversity of investors and assets and certain required distribution policies. If it does so, then in broad terms, it can expect to be exempt from Irish tax on its Irish real estate income and gains.

8.3 The legislation accepts that, in the initial phase of a REIT, not all of the conditions will immediately be satisfied. Although a REIT must have its ordinary shares listed on the main market of a recognised stock exchange in an EU Member State, it has three years within which to satisfy that condition. It is entirely possible for a REIT to have a listing on an alternative market (such as AIM or the Irish ESM market) for an initial period, and then migrate to a main market listing within three years. Interestingly, post-Brexit, assuming the UK is no longer an EU Member State a London listing will not of itself allow an entity to access the REIT regime. It would be necessary to also have a main market Irish listing, or alternatively the legislation would require amendment to cater for the London listing.

8.4 If a REIT ceases to meet the conditions, it may cease to qualify for the taxation treatment as a REIT. The most common question is whether this gives rise to taxation. The legislation provides that, immediately prior to ceasing to be a REIT, the company is deemed to have disposed of, and reacquired all of its assets at market value. As this deemed disposal occurs when the entity is a REIT, any such deemed gains should not be subject to Irish corporation tax. The REIT should be exposed to tax only on income and gains arising after the REIT status has ceased. The absence of any penal "exit" charge is a possible incentive for entities to secure REIT status even in situations where they may not ultimately be successful.

8.5 Obviously, the REIT provisions are complex but as shown careful consideration of the consequences of the rules may be valuable.

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Corporation Taxation

9 Share Buy-Backs - Recent Revenue Guidance

9.1 Revenue recently published guidance on the acquisition by a company of its own shares and the conditions that must be satisfied for capital gains tax treatment4. These provisions are relevant to any form of share redemption, purchase or repurchase (a "share buy-back")

9.2 For many Irish business owners and investors, a share buyback represents an attractive method of returning value at lower, capital gains tax, rates of tax rather than much higher income tax rates.

9.3 The basic rule is that any amount paid in excess of the original share subscription price is treated as a distribution by virtue of Section 130 TCA 1997. Accordingly, it is subject to tax as income in the hands of an Irish resident individual and the paying company may have an obligation to deduct dividend withholding tax. Therefore, the tax exposure if the incorrect treatment is adopted can be significant.

9.4 Capital gains tax treatment is available provided a number of conditions are satisfied. These include:

(a) the share buy-back must be made wholly or mainly for the benefit of the company's trade or the trade of a 51 per cent subsidiary;

(b) the vendor must have owned or be deemed to have owned the shares for at least 5 years (except in the case of inherited shares when 3 years is sufficient); and

(c) there must be a proportionate 25 per cent reduction in the vendor's interest in the company or the group.

9.5 The guidance provides a number of examples where Revenue will accept that the share buy-back is for the benefit of the trade. These include where there is a disagreement between shareholders which is expected to have an adverse effect on the company's trade. In addition, they cite the example of an outside shareholder who has provided equity finance and wishes to withdraw that finance. Revenue's guidance is clearly focused on cases where there is a full exit, however partial withdrawals are also accepted, provided there are legitimate reasons to retain an interest. This may include where a director may remain involved as a shareholder in order to avoid a sudden departure which would damage the business of the company.

9.6 Revenue has agreed, in exceptional cases, to provide an advance opinion in relation to the "trade benefit test". This route is commonly used in cases involving share buy-backs given the tax at stake.

9.7 The Revenue guidance says relatively little about the remaining conditions, however in their example they focus on the 5 year ownership period as it is understood that this is frequently overlooked by companies who seek to implement a share buy-back.

the Key Employee Engagement Programme ("KEEP"). The KEEP regime commenced on 1 January 2018 and Irish Revenue's guidance on KEEP was published in April 2018.5 10.2 Under the KEEP regime no income tax charge applies when the share options are exercised. Rather, a capital gains tax liability arises when the shares are actually disposed of by the employee. Under a normal (non-KEEP compliant) share option a liability to income tax, PRSI and USC arises on the exercise of the share option. There is therefore a potential tax saving and timing advantage for employees who are granted shares which are KEEP compliant. 10.3 There are a number of conditions which must be satisfied including: (a) the shares must be ordinary shares, which carry no preferential rights (i.e. to dividends, to the company's assets on a winding up or to be redeemed); (b) the option exercise price cannot be less than the market value of the shares on the date the option is granted; (c) an employee's shares under the option cannot exceed 100,000 in any one year, 250,000 in any three consecutive years, or 50% of the individual's annual pay; and (d) the company must supply details of qualifying share options to Irish Revenue within the prescribed time limits. 10.4 The KEEP scheme has proven popular amongst clients in the first half of 2018. From Maples' perspective, we see KEEP as a useful tool to incentivise key staff. However, KEEP is merely one of a number of such tools and we continue to see interest in more traditional share schemes, such as restricted share awards and of course unapproved options.